ASYMMETRIC INFORMATION AND MARKET OUTCOMES

Asymmetric information is a problem in many markets, such as the used car market, the insurance markets, and the credit markets. Choose one of these three markets, and using some of the concepts you learned from this module, discuss the questions below:

• What is the market response to asymmetric information? (Hint: Does Coca-Cola have an asymmetric information problem?).
• What is the market response to adverse selection? (Hint: When you purchased life insurance, did you have to take a physical exam?).
• What is the market response to moral hazard? (Hint: Remember last time you saw a doctor you had to pay a $30 deductible?).
• Do you think that education is a “market signal” that can help companies make better economic decisions when asymmetric information exists?
• What would be the market response if there was perfect information?

Assignment Expectations

Describe the purpose of the paper and provide a conclusion.

Present information in a professional manner.

Answer the Case Assignment questions clearly and provide necessary details.

Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.

Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references with credible sources (3-5 sources) [http://owl.english.purdue.edu/owl/resource/560/01/].

Type and double-space the paper, min 4-5 pages.

Please use Excel, chart, or graphs to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.

Reading Required:

Economics Online. (n.d.). Information Failure [Video file]. Retrieved from http://www.economicsonline.co.uk/Market_failures/Information_failure.html

‪Lillo,F. (2013, July 10.) Tutorial An introduction to asymmetric information [Video file]. Retrieved from https://www.youtube.com/watch?v=jtQCRPJ4K9o

Smith, P. (2013, Aug. 3). Econ in HD: Moral Hazard and Adverse Selection [Video file]. Retrieved from https://www.youtube.com/watch?v=XH70zIJP5cM

Thoma, M. (2013. Explainer: What is “moral hazard” [Video file]? Retrieved from http://www.cbsnews.com/news/explainer-moral-hazard/

Tomlinson, S. (n.d.). Understanding Asymmetric Information as an Economic Problem. Retrieved from http://college.cengage.com/economics/0538797274_mceachern/student/transcripts/8447.pdf

Webpedia. (n.d.).Assymetric Information. Retrieved from http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=asymmetric+information

Tomlinson, S. (n.d.). Understanding Moral Hazards in Markets. Retrieved from http://college.cengage.com/economics/0538797274_mceachern/student/transcripts/8448.pdf

Citizendiu. Moral Hazard. Retrieved from http://en.citizendium.org/wiki/Moral_hazard

Economicshelp. (n.d.). Asymmetric Information Problem. Retrieved from http://www.economicshelp.org/blog/glossary/asymmetric-information/

Links to the Used Car Problem

Required Reading

CFPEcon101. (2010, Jan. 11). Economics 101: Moral Hazard [Video file]. Retrieved from https://www.youtube.com/watch?v=_SdtoKeFTi0

Links to the Lemon Problem

Required Reading

Macroman9. (2011, April 27). Lemons Problem Econ11 [Video file]. Retrieved from https://www.youtube.com/watch?v=yGAkeWx5u-c

tatulln84. (2010, April 6). Adverse Selection and Insurance [Video file]. Retrieved from https://www.youtube.com/watch?v=igqbCTFSFVM

Optional Reading

Cavallaro, M. (n.d.) How To Avoid Buying A “Lemon” Product. Retrieved from http://www.investopedia.com/articles/pf/11/solutions-to-lemon-problem.asp

openlectures sg. (2013, Feb. 9). Principal Agent Problem [Video File]. Retrieved from http://www.youtube.com/watch?v=NfigWaPhAqo

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